Case 4: Application of Costing to Indigenous Business Unit in Hubli City A case study of Happy Cone Ice Cream Manufacturer *Prof. Mahesh Bendigeri **Ms. Pooja Kamath ***Ms. Preeti Supe Introduction:
Ice-creams of many varieties, flavours and in different forms (cones, cups, slices, bulk packing, candies, etc) are served round the year and demand is going up year after year. Possibly the most popular mode of serving is in cones as it is neat & clean, easy to store and there is no disposal need. With continuous increase in sale of ice-creams, demand for cones is increasing. It is a mass consumption item. Ice-cream cones are prepared from wheat & corn flour and they are eaten along with the icecream. Pre-determined quantity of ice-cream is automatically filled in each cone. Cones are not only convenient but there is no residual waste as well. They are of different colours and flavours. This is a very common product and can be produced all over the country. Nearness to urban market should be the main guiding factor. Students Background: Learning is fun when theory is put into practice. Students get practical knowledge by working on live cases. In this regard a team of two students as a part of their academic requirement were assigned the job of preparation of cost sheet of local vendor. The students were informed to select their own firm for the study. Accordingly the students have selected Happy Ice Cream Cone Manufacturing Industry for the study. Ms. Pooja Kamath and Ms. Preeti Supe of Sem II class of the batch 2013-15 had personally visited the Happy ice cream cone manufacturer for their study. Through their interaction and field visit and the data they have collected. They case study has been developed. Brief Profile of Happy Ice Cream Cone Manufacturer: It is a sole trading concern started by Mr. Dinakar V K. It is located in Kamaapur, Dharwad. It was started with an initial investment of Rs. 5000. Mr. Dinakar is SSLC passout. Initially there were only two employees, but later on due to his hardwork and dedication the business was expanded an presently there are 8 employees working under him. The firm manufactures many variety of ice cream, but for the purpose of study. Only the data related with manufacturing of ice cream cone is collected. Objective of the Study: • • •
To determine the cost of manufacturing per ice cream cone To determine the basis of allocating common overhead To determine the profit per cone.
Purpose of the Study: The main purpose of this study is to understand the costing model applied in the ice cream industry and the method adopted in ascertain the cost per unit. Ascertainment of cost per ice cream cone is most challenging job the ice cream cone are not sold on per unit bases from the point of manufacture to the retailer. They are sold in a packet of 10 cones. But yet based on the no. of cones that are manufactured with the use of basic raw materials and other ingredients. It is possible to know the cost per cone ice cream. Cost Sheet: Cost sheet is a statement, which shows various components of total cost of a product/service. It classifies and analyses the components of cost of a product. It is a statement which shows per unit cost in addition to Total Cost. Selling price is ascertained with the help of cost sheet. The details of total cost presented in the form of a statement is termed as Cost sheet.
Data collection and Analysis Following is the information collected from owner of Happy Ice Cream with respect to component of cost sheet. The information is collected for 5000 cone ice cream manufactured in a month. Based on this the analysis was done to determine the most appropriate way of ascertain the cost per cone. The information collected here are based on the oral interaction done with the owner. Analysis and Findings: • From the analysis of Cost sheet it is found that total cost manufacturing 5000 cone ice cream is Rs. 113500, where as the sales revenue from it is Rs. 150000 per month. Total profit for the month is Rs. 36500. • From the point of Cost per unit, the cost per unit of manufacturing the cone ice cream is Rs. 22.70. whereas the profit per unit is Rs. 7.30 and accordingly the selling price is Rs. 30 per cone ice cream. • From the cost sheet it is also found that the major cost of manufacturing the ice cream goes into raw material cost. Since taste of ice cream is most essential component which cannot be compromised, due to this reason the cost of raw material may be more. • Some cost like labor cost has been allocated on the basis of time spent in manufacturing the cone ice cream. As the labor also manufacture other variety of ice cream, so their labor cost is allocated accordingly. • Depreciation on cold storage room is allocated on monthly basis. Conclusion: From this study it is found that we can apply the concept of cost sheet to indigenous business unit and ascertain the probable cost of a given product/ service. We conclude that small business unit can also make huge amount of profit if cost are properly accounted for.
Cost Sheet of Manufacturing of Cone ICE Cream 5000 cone ice cream in a month. Particulars
Direct Materials Wheat (10quintal @ 2500) Wrapper Biscuit Dry Fruits Milk Flavors Sugar Cone Lid Packing Box Direct Wages (6labour @ 2500each) Direct Expenses Prime Cost Factory Overhead Factory lighting Dep. On cold room Fuel Works Cost Administative Overhead Accountant salary Cost of Production Selling & Distrubution Overhead Delivery Vehicle exp Salesman salary
Total Cost Profit Sales Cost per cone ice cream
Cost Per cone ice cream
80150 25000 10000 7500 15000 1250 10000 9000 1000 1400
5 2 1.5 3 0.25 2 1.8 0.2 0.28
1.5 1.25 18.78
7500 6250 93900 10850
5000 850 5000
1 0.17 1 20.95
22.7 7.3 30 22.7
104750 2000 106750 6750
113500 36500 150000
Field visit Video available on YouTube click on this : http://youtu.be/D8FzuGWlubE Reference: Project report submitted by Ms. Pooja K and Ms. Preeti Supe on 17th feb 2014. http://mpstateagro.nic.in/Project%20Reports%20pdf/ICE%20CREAM%20CONES.pdf